Entries Posted in shipping

Dim weight. Sounds like something you might call your not-so-smart cousin. It’s actually a way to price parcels based primarily on how much space they take up during transport and delivery.

FedEx is the first major carrier to announce plans to charge prices based on the dimensional weight of all its ground shipments. Retailers and other shippers are bracing for a nasty hike in shipping costs come January 2015, when the FedEx changes take effect.

Shipping costs are heavily influenced by how much cubic volume a parcel takes up in the back of a truck or plane. If parcels are roughly uniform in density (weight in relation to size), then charging by weight makes sense. But if parcels are light yet bulky, such as shoes, diapers, and many other goods ordered online, then weight-based pricing doesn’t reflect costs. Dim weight pricing will let FedEx charge more for these light yet bulky packages – for example up to 30 percent higher on a 32-pack of toilet paper – that take up more space in the truck.

Analysts say FedEx’s change will result in the most dramatic rate spike the parcel shipping industry has seen in decades. And these increases will affect either online shoppers or retailers, or both. As the Wall Street Journal recently noted: “Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs.” Could free shipping for consumers become a casualty of this pricing change?

Analysts expect UPS to follow suit with a similar pricing strategy. If so, the Postal Service and small regional carriers could see an uptick in volume – albeit higher-cost and lower-yield volume – as shippers look for ways to reduce the expected sticker shock from dim weight pricing. The move also could accelerate Amazon’s reported plan to launch its own fleet of trucks and drivers for local deliveries.

Do you think FedEx’s change in its pricing structure will benefit the Postal Service? Or is it likely to primarily shift less-profitable packages to the Postal Service? Should the Postal Service consider a move to dim weight pricing for its ground services as well? Or would it hurt the Postal Service’s standing as the lowest-priced competitor?

Postal customers took fewer trips to the Post Office this past holiday season but that doesn’t mean they spent less on postal products. They just conducted more business through alternative channels, such as online at USPS.com and self-service kiosks. Over the 2013 holiday season, transactions at brick-and-mortar post offices were down 8 percent compared to last year, but transactions through alternative access were up 17 percent, postal officials reported.

The movement to online postage transactions certainly mirrors the larger societal shift toward e-commerce and mobile commerce. But the big shift over the holidays to alternative access could also be the result of reduced hours at some post offices. Customers will shop where they find it most convenient, and in some locations post offices are opened only a few hours a day. This certainly makes Village Post Offices and contract postal units, self-service kiosks, and online purchasing more attractive. Many of these options are available 24 hours a day.

The U.S. Postal Service recognizes that it needs to be where people find it most convenient to buy postage or other mailing services. The Postmaster General stated as much at the recent Mailers’ Technical Advisory Committee meeting when addressing alternative access, including the Postal Service’s decision to partner with Staples. But alternative access retail options have limitations, which if not addressed could frustrate customers and leave some money on the table.

Our recent audit of self-service kiosks found that customers are not using kiosks as much as anticipated for a few reasons: they sometimes are located in hidden parts of the lobby; kiosk signage is not always visible; and lobby assistants are not always available or fully trained to help customers help themselves. In addition, self-service kiosks are generally housed in retail outlets with the highest mail volume, primarily urban and suburban areas. Low-traffic retail outlets, often in rural areas, get a double whammy. They are not likely to have a kiosk and their Post Office hours are reduced.

How can the Postal Service ensure that customers receive suitable services while reining in operating costs? Does the Postal Service need more self-service kiosks, or should it redistribute the 2,500 now in service? What incentives might the Postal Service offer merchants to house Village Post Offices? Or should the Postal Service restore hours to its own post offices, even those that are not profitable?

The 2013 holiday season turned out to be a particularly eventful one for e-tailers and the shippers that deliver all those packages to your door.

Factors like fewer than average shopping days between Thanksgiving and Christmas and an increasing comfort level with online buying helped push holiday e-commerce up significantly. In fact, demand exceeded expectations and stressed shippers’ capacity, causing some late deliveries of their goods.

Package delivery is clearly a growth industry and the Postal Service expects its piece of that business to rise 6 to 7 percent annually through fiscal year 2017. But is the Postal Service ready for all these packages? Can it meet the growing demand, or is it hampered by a delivery infrastructure that is largely geared toward letters and flats? We recently took a look at the issue and the results were mixed.

Our audit report, Readiness for Package Growth – Delivery Operations, found the Postal Service has done a good job of managing package growth in terms of mail volume and workhours. But it could make some changes to better handle future increases. For example, to-the-door delivery works well but curbside mailboxes were primarily designed for letters, flats, and small parcels, and they can’t easily accommodate multiple or large packages. We suggested the Postal Service look at modifying cluster boxes to accommodate more packages.

We also encouraged the Postal Service to explore investing in shelving space on delivery vehicles to accommodate packages and to continue to develop an advanced dynamic routing system. Dynamic routing analyzes individual addresses to tell the carrier how to get to them more quickly. The tool takes into consideration things like traffic congestion and left-hand turns, both of which can eat up time and fuel. These and other steps outlined in the report should help the Postal Service expand services and increase revenue to meet growing customer demand.

So, what was your experience over the holidays? Were you among the many Americans who bought more gifts online than in previous years? Were your delivery services reliable or did any part of the experience discourage you from future online buying? What changes would you like to see in delivery and returns?

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